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MND NewsWire features plain and simple interpretations of industry related data and events written in a manner that maintains the interest of random readers while still catering to the perspective of a housing market professional.

With the House and Senate working to hammer out differences in their respective approaches to solving the housing/credit crisis, problems are already emerging with other solutions proposed or enacted tackle pieces of the problem.

The New York Times reported on Wednesday that there are real problems with the jumbo mortgage aspect of housing rescue.

Several months ago Congress, in an attempt to loosen up credit in costly markets, raised the loan limit on loans which could be backed by government-sponsored housing finance agencies such as the Federal Housing Administration from $417,000 to amounts up to $730,000, depending on location. The change was intended to reduce rates for more borrowers (jumbo loans have always carried a higher rate than conventional loans, i.e., those below the loan ceiling) and to stimulate lending. The goal was not aimed at helping subprime borrowers but was aimed at credit-worthy borrowers with acceptable down payments who wanted to refinance or purchase a home in expensive housing markets like San Francisco or New York. It was thought that helping thousands of borrowers access billions in new loans would stimulate the housing market, spur consumer spending and possibly avoid or at least reduce the effects of a recession.

Instead, Matt Richtel, reporting in the Times says the effort to make it easier to get jumbo mortgages has yielded frustration and disillusionment. Since the rules took effect April 1, many borrowers and their mortgage brokers say the new loans are either not available or the rates are far higher than they expected.

Richtel quotes the president of one mortgage corporation as saying that the program 'is so much of a failure that it's really unbelievable'.Like coming up with a vaccine to a terrible disease, and then not giving it to people, or making it too expensive.'

But, Richtel said, rates have not dropped ' at least not to the degree that many borrowers and mortgage brokers had expected. In some cases, 'conforming' loans, so designated because they conform to the old government-sponsored rules, are a full percentage point below the newly conforming jumbo loans intended to be covered by the new law.

One reason that the loans are not competitive has to do with that now familiar word, securitization. Lenders can package and sell conforming loans as mortgage-backed securities either on the open market or to Fannie Mae or Freddie Mac. The private sector is open to these securities because they know that they can resell them later to housing finance agencies. Thus the conforming loans can offer a lower interest rate to borrowers.

Freddie Mac recently announced it would buy up to $15 billion of the newly defined loans. That could lead to more loans and lowered interest rates, but there is not a lot of time. At the end of the year the system is supposed to revert to the old loan limits and lenders as well as secondary investors are hesitant about changing rules and operations for a short time.

Two other major initiatives, a program run by the Federal Housing Administration and proposed Federal Reserve rules on lending which are about to emerge from the comment period, are also under attack. We will take a look at these as well as attempt to catch up on the status of the very different housing bills passed by the House and Senate which are being worked out in compromise committee.

Comments

in my opinion the jumbo lon market really doesn't exist, with all the price hits that a borrower now faces such as credit score hits and loan size adjustments the regular fannie mae jumbo loan really does not exist

David

on

I'm an AE at a $100M/mo mortgage company and I can attest that less than 10% of our fundings fit into the new expanded loan limit guidelines.
Out of 81 submissions last week, 8 have been approved.
Quite simply, leave the politicians out of lending standards and the market will stand a chance at recovery.

Tom

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I first noticed the failure of this program on April 5. Instead of the rates for the higher loan limits dropping to the level of the old conforming limits rates, the rates actually went up a 1/2 %. Thus, it actually hurt those loans under $417,000, because the rates went UP!

Lora

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Not one of the changes made or proposed has been helpful to the economy, consumer or those of us who's living is related to Realestate. So far it creates an illusion of concern and illusion of something being done to help, an illusion of congress being on a top of things, when in fact every action is only to benefit big banks, eliminate consumer's ability to shop for a best deal and push toward direct bank choices, making the process completely consumer unfriendly and costly.
I feel big money will win again and all the rest of us will pay again.
If Congress was real about helping this issue, getting the Real Estate market going, move the economy, put people to work..
They would talk with Leading Mortgage and Realestate Brokers and most of all listen to what they have to say not just big bankers who protect their interest and see it as an opportunity to eliminate Mortgage Brokers and create mortgage market much less competitive.
"Mortgage Broker " has been painted as a dirty word and less then honorable profession. Someone must be interested and works very hard to plant it in every ones heads. Must be the same powers who pushed and promoted sub-prime loans in a first place. Only they remain in a shade away from all that publicity, doing what they always did: make Congress make some unpractical decisions and come out later with a fix that would benefit them again.
Only this time its no time for a Test Drive. The Test Drive will drive this economy into depression. Those who refuse to see it, don't look away like you did when recession wasn't in your view.
Oh, and one more thing. Please give us some credit. We can recognize an illusion of doing something to help and really doing it.

Colleen

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I was very disappointed with the rates tied to the GSE Jumbo loans. This and all the added costs to the conforming rates will prevent the housing market from improving. The GSE's are adding costs and higher rates to compensate for their losses over the past 3 yrs.

Denise

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Gee go figure. Did anyone else see this coming or is it just me? Now, how long is it going to take them to fix it the right way? drag, drag, drag....while American Homeowners Suffer more!

John

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Unfortunately this is what happens when the Govt sticks it's nose into markets every time. The problem with jumbo was liquidity and it remains so because the intervention with it's "new rules" has made it impossible for products to be quickly defined and introduced to the market in a form that investors will purchase.

philip

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The problem is that houses can't be as expensive as they are relative to incomes. No bailout will help, all it will do is leave the NEXT generation priced out of housing too. History says prices must be at a 3x to 5x. Government involvement in propping up prices is a bad idea. But real estate professionals need to realize as well that the prices MUST come down. Why is home price inflation considered good? Trick question, it isn't. Unless you are a professional paid a % commission.

Randy

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The other thing, the borrowers Jumbo Conforming is supposed to help (from a refi standpoint) can't qualify anyway. During the boom, the rates, qualification standards, and repayment options (I/O for instance) pretty much made this product non - usuable due to payment shock. To get the borrowers into someting comparable would require a rate well below even current convetional rates. It's effectively useless as an incentive to keep a home in the jumbo category.
If you had to go stated when the payment was low, how are you going to qualify now?
Also, the terms - (no cash out, ever or no deal) pretty much sends a message - they don't want these loans. This is just lip service to the borrowers out there hoping for a solution- nothing more.
The day these guidelines were released I chuckled and tossed them away...

Eugenia Renskoff

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Hello, I feel that those people most in need of help should be helped. Not enough is being done for them.

Anonymous

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I have been highly disheartened that not enough has been done to improve the situations of homeowners that have home mortgages between $417,000-700,000.00. They have good jobs and pay their bills and been slapped in the face with between higher rates and adjustments that have been put in place they are unable to refinance their homes. It has become a sad custom for me to tell homeowners that I can do anything help improve their situation and they need to twist in the wind for someone to act. I have had to tell 3 different homeowners in the last week "That they can not do anything there is nothing out there for them." How many people have to get loss their homes before real action is taken? How many people across the board have to loss their jobs? Construction, manufacturing, transportation, grocery stores, retail stores ... it's not just the banks, real estate agents, mortgage brokers, appraisers that are affected. If people can't afford the basic necessities in life we are all head down a dark road. How long do we wait for action?

Anonymous

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Current Guidelines and Rate adjustments for Conforming Jumbo loans are completely unrealistic. With the declining values, home owners that have good payment history and proof of income verification should not be penalized over the subprime issues. If the Govertment wanted to help, they should have stayed out of the banking world and allow the bankers to do what they do, lend money. The new package has done nothing but promote false claims by the US government.

Anonymous

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There is no help for the homeowner whose home is now worth less than the mortgage. Even if they are paying their mortgage and other bills on time. They cannot refinance. If they could refinance, you now need a credit score at about 700 or more and your debt low. When inqiring about the FHA Secure Loan, you are told to pay down your credit card debt.

meryl

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What ever happened to personal responsibility!!!??? I am not in favor of bailing out people who have made poor decisions. Mortgage companies who lie should be penalized.

Jamie

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Saw it coming! Investor weary about packaging high loan amounts into the same bundle as normal, conforming loan amounts could ONLY equate to higher rates across the board!
Bummer, indeed. But to echo the same sentiment, yes, congressional and legislative intervention has been a moot effort. Let the boilover take place and the spilled mess will evaporate off the stove top in due time. It's an economic certainty.

Douglas M. Thomson Sr.

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Most people applying for Jumbo loans have allready demonstrated their credit abilities. The must put more money into the kitty and if not then expensive mortgage insurance is required to protect the lenders. I see no reason for higher interest rates. The lenders just want more money for the same product. The only differnece is the loan amount. I think the FEDS must set strick guidelines for mortgage related loans that every lender must follow. When you think about it for a minute. The current logic is actualy discrimation based on the loan amount not the home buyers actual ability to qualify for the loan product.

Anonymous

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Maybe those who are coming up with this nonsense (new loan programs (Govemment People, Politicians, Lobbiests) should walk a mile in their creation before unleashing it on the public! The parties who come up with this crap obviously no NOTHING about this business - who do they think they are kidding? Let's see one of them "qualify" for their newly designed loan program!

RANDY

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What is unrealistic is hoping that there is a gubmint solution to magically make payments affordable for these people who are stuck with these loans. Newsflash- it won't happen- not unless Fannie wants to start writing 75 year notes at 140% LTV. We are dealing with several issues such as asking for government intervention on what essentially is a private contract between parties. Under the present proposals, nothing will work effectively. Partial forgiveness? Penalizes the GOOD homeowners. Fed puts more money in? Sustains housing prices preventing new buyers in the marketplace and it's a hit to the taxpayers.
Even if there was some sort of resolution that might work- more than a few homeowners would still be turned off by the fact the homes they own are more than likely losers in value- even if it hasn't officially happend yet it's a compelling argument to walk away from the house and take the credit lumps. The other thing, is that any solution will penalize those who can and are willing to make the payments. This downward spiral will continue until we can get some new buyers in the market, which will not happen until we see housing prices drop in these high cost areas, which means more people have to walk away from homes, which means more investors scared of MBS, and on and on. "IF" there is a bailout offered, they need to severely penalize anyone using it - treat it like a student loan- can't get rid of it if you default, that way anyone looking to take the easy way out is still stuck with it. Anyone who doesn't use this option takes their lumps and the lenders take their lumps too. Bottom line is, the market just needs to get the crash over with - taxpayers can't be footing the bill for these rescue plans without some recourse, and the lenders shouldn't be expempt for poor choices in judgement, and the good homeowners who can and are able to make the payments need a good incentive to stay there. Under no circumstances should anyone who uses taxpayer funds be allowed just to take the standard hit to credit if they default - a gubbie backed loan that if you default, it stays there. The FED shouldn't be offering such solutions without some sort of return, it isn't fair to taxpayers to bail out anyone who did this recklessly - not without some sort of liablity on the homeowners or RE speculators.

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